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Issue Number One

Politics & the Economy; Inflation Skyrockets; Trouble in the Air

Aired July 16, 2008 - 12:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


GERRI WILLIS, CO-HOST: Inflation is skyrocketing. Why the price you pay for certain goods is rising fast.
Plus, high gas prices, trouble in the banking sector, the mortgage meltdown, what all of these could mean for the presidential election.

We'll break down the candidates' issues, which airline could be in danger of going under, and we'll show you the absolute best places to live, where you'll get the most for your money.

Issue #1 is your economy. ISSUE #1 starts right now.

From the ISSUE #1 one headquarters to the CNNMoney.com newsroom, we are all over the stories that matter to you.

Hello and welcome to ISSUE #1. I'm Gerri Willis.

This has been quite a week for issue #1, the economy.

The Federal Reserve chairman is back on Capitol Hill with some strong words. We'll head to the Hill for the latest.

And we've talked so much about the subprime mess. This hour, you'll hear firsthand from a subprime lender who says about just who is responsible for the mortgage meltdown.

And airline ticket prices are way, way up. Why certain airlines could be in serious financial trouble.

But we begin today with the quickly rising inflation.

ALI VELSHI, CO-HOST: Yes, Gerri, it's quite a story, a bit of a surprise, although not for those people who have been spending money and have seen prices go up.

New numbers out this morning show the biggest yearly inflation jump in 17 years.

CNN Business Correspondent Stephanie Elam joins us now from the New York Stock Exchange with more on that story.

Hi, Stephanie.

STEPHANIE ELAM, CNN BUSINESS CORRESPONDENT: Hey, Ali.

Yes, the numbers show us what so many of us already know. The prices we pay, they're going up, and they're going up fast.

Today's monthly Consumer Price Index report shows consumer prices surged five percent over the past year. That's the biggest annual jump in 17 years.

And then on top of that, we got a separate report which shows average hourly wages increased 3.4 percent over the same period. So this discrepancy -- and it shows that our pay is not keeping pace with retail prices, and that could cause shoppers to pull back even more, and that would deal yet another blow to the economy.

And it's really not hard to find the reason for the big jump. Just think about all of the things we've been talking about over the last year. We've got those records in oil, we also have gas prices that are up and up and up, and then rising food and airfare prices. Put all that together, and you have some very worrisome inflation.

So that's what we're looking at here, Ali. Back to you.

VELSHI: Stephanie Elam, thanks very much.

We'll get back to what's going on in markets.

Let's go to West Lafayette, Indiana, right now, where presumptive Democratic nominee Barack Obama is speaking now to a crowd there. Let's listen in to what he has to say.

(JOINED IN PROGRESS)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: ... Finally, I do want to acknowledge Dick Lugar, who is not here, your second senator. Other than the fact that he is a Republican, I can't find -- I can't find anything wrong with that guy. He is just a...

(APPLAUSE)

He is a great friend. And much of the work that I've done in this area has been with him and his office. His staff is outstanding, we've traveled together. And so I want to make sure to acknowledge his outstanding leadership, along with Sam Nunn, in some of these critical areas.

The two of them working together probably did more in the 1990s and continue to do more than just about any other American citizens in making sure that we are safe from cataclysm. And so we are very grateful to both of them for their outstanding efforts.

(APPLAUSE)

So we've got some very smart people here who I'm going to take the time to introduce in a moment. And I'm going to, as a consequence, keep my remarks brief, because I know that many of you want to hear from them.

But it is wonderful to be back in Indiana. In a few moments, we'll open up the discussion. But I want to offer a few comments about some of the emerging threats that we face in the 21st century and offer some ideas about how we can face those threats.

Throughout our history, America's confronted constantly evolving danger, from the oppression of an empire, to the lawlessness of the frontier, from the bomb that fell on Pearl Harbor, to the threat of nuclear annihilation. Americans have adapted to the threats posed by an ever-changing world.

And for most of our history, the most significant danger to our security came from nation states. The physical safety of our people was protected by oceans. The national security of the United States was buttressed by our extraordinary economic strength and a powerful military that answered every call.

Today, the dangers extend beyond states alone, to transnational security threats that respect no borders. These are threats that can arise from any part of the globe and spread anywhere, including to our own shores. Dangers like pandemic disease, nuclear weapons proliferation, environmental degradation, international criminal networks, and terrorism.

Of course, we've long struggled against terrorism, and in the closing decades of the 20th century, we tragically lost American lives on our soil and abroad. But it was hard to change a mindset that saw the extremism, the resentment, the terrorist training camps, and the killers as distant threats in the dark corners of the world far away from the American homeland.

One Tuesday morning in 2001, everything changed. I remember hearing the news, as I'm sure many of you do. I was in a car on my way downtown to Chicago and heard the report that a plane had hit the World Trade Center. And by the time I got to my meeting, the second plane had hit and we were told to evacuate the building.

And people gathered on the streets downtown Chicago and looked up at the sky. And the Sears Tower. And like many of you, I feared for our country and I feared for my family.

We mourned the terrible loss suffered by our fellow citizens in those two office towers at the Pentagon and in that barren field in Pennsylvania. Back in my office, I watched the images from New York, the plane vanishing into glass and steel, and men and women clinging to window sills, and then letting go, and tall towers crumbling to dust. And it seemed as if all the misery and all the evil in the world were in that rolling black cloud that blocked the September sun.

So what we saw that morning forced us to recognize that in a new world of threats, we're no longer protected by the size of our oceans or solely by our military power. In a globalized world, the power to destroy can lie with individuals and not just nation states.

The terrorists use a world of globalization to travel freely, to transfer money, to use telecommunications to carry out their plots. On 9/11, they used our open society to kill on a terrible scale. But even more terrifying was the thought that they could get their hands on the world's most deadly technology. And since then, we've taken many steps to strengthen our defenses. Some of the most visible address the attacks or failed attacks that have taken place. So, after 9/11, airline security tightened, plastic knives replaced metal ones. After the so-called shoe bomber, we started having our shoes screened. After a plot detected in London to ignite dangerous liquids, we started to check our gels and shampoos.

The danger, though, is that we're constantly fighting the last war, responding to the threats that have come to fruition instead of staying one step ahead of the threats of the 21st century. This is what the 9/11 Commission called our failure of imagination. And after 9/11, nowhere was this more apparent than in our invasion of Iraq.

Instead of adjusting to the stateless threats of the 21st century, we invaded and occupied a state that had no collaborative relationship with al Qaeda. Instead of taking aggressive steps to secure the world's most dangerous weapons and technology, we've spent almost $1 trillion to occupy a country in the heart of the Middle East that no longer has any weapons of mass destruction.

VELSHI: And you've been listening to Senator Barack Obama in West Lafayette, Indiana, delivering a speech there. We'll keep an eye on that, and if he says anything that we need to break in with, we will bring that back to you.

Gerri, over to you.

WILLIS: Ali, well, tempers are flaring over how to handle Fannie Mae and Freddie Mac. Listen to this exchange between Senator Jim Bunning and Treasury Secretary Henry Paulson just yesterday.

(BEGIN VIDEO CLIP)

SEN. JIM BUNNING (R), KENTUCKY: Where is the money going to come from if you have to put it up?

HENRY PAULSON, TREASURY SECRETARY: Well, obviously it will come from the government. But I would say...

BUNNING: And who is the government?

PAULSON: The taxpayer. And I'm -- what I'm looking to do is the same thing you are, Senator, to minimize the cost to that taxpayer. And I think the surest way to do that is...

BUNNING: Secretary Paulson, I know you're very sincere in your proposal.

PAULSON: Yes.

BUNNING: But come January, you will be gone.

PAULSON: Right.

BUNNING: And the rest of us will be sitting at these tables, or at least most of us. And we have to be responsible to the taxpayer for what we have done.

(END VIDEO CLIP)

WILLIS: All right. Senator Bunning is joining us right now from Capitol Hill.

Welcome, Senator.

An impassioned, to say the least, conversation between the two of you yesterday. I want you to tell me specifically, what is wrong with the administration's plan for shoring up Fannie Mae and Freddie Mac, critically important institutions to the mortgage market.

BUNNING: Nothing wrong with it, but we don't have socialism here in the United States. And if you want to go to socialism, let's go to France.

WILLIS: Well, what's socialistic about this plan?

BUNNING: Well, it's the government taking over all of the mortgage market and being responsible for it. The same thing is happening in medicine, the same thing is happening in health care. So we are going -- instead of free markets and open markets, which this country was founded on, we are leaning towards 25 years ago in France when they moved to socialism. I'm not for that.

WILLIS: All right. Well, let's dig down here just a little bit.

What's interesting, of course, is these are members of your own party. These are fellow Republicans who have come up with this solution to solve the mortgage mess.

BUNNING: Well, they're wrong.

WILLIS: What is the right solution?

BUNNING: The right solution is to leave Freddie and Fannie and maybe pass a GSE regulator that will require Fannie and Freddie to get more equity, and make sure that they're not out there lending money and backing up securities and mortgages that are so risky as the Fed allowed them to get into.

WILLIS: Well, Senator, that sounds like a recipe for disaster. I mean, if you do nothing, Fannie and Freddie essentially blow up.

BUNNING: No, I didn't say do nothing. We have a bill that has passed the House and passed the Senate, are trying now to reconcile it on housing, on GSE reform, which would address some of those problems.

And to say that we're not doing nothing is wrong. We are doing something. We have done something. Now let's see if we can get together with the House and Senate bill and do something very positive for GSEs and Freddie and Fannie, and all of the others.

WILLIS: Well, I think the worry here is that we could have another situation like IndyMac, a run on the bank, that this could happen to other institutions, as well. The steps to reform Freddie Mac and Fannie Mae at the margins, can they go far enough to really make the differences that need to be made here?

BUNNING: Yes. A good regulator can be instrumental in making sure.

What the Treasury has proposed is to give the Federal Reserve more power. Now, I hate to tell you this, but the Federal Reserve is the reason we're in the debacle in the housing market that we're in. They -- by keeping rates so low and keeping the money supply so plentiful, they have driven the value of the dollar and our mortgage markets into submission.

WILLIS: Well, clearly...

BUNNING: And here Freddie and Fannie are trying to survive this crisis caused by the Federal Reserve.

WILLIS: Well, let's look forward for a second. I mean, you know, there have been possibly mistakes made in the past. A lot of people have argued that. But when you look forward, what is the long- term solution to this problem?

Is it more regulation? Is it more government intervention?

BUNNING: I hope not. I hope that's not the answer that we come up with.

The thing is, is to make sure that Freddie and Fannie are on a sound financial footing and that they can fulfill the purpose for which they were created. And that was to back the mortgage securities. And they have only $7 trillion worth of securities that they are backing right now in the mortgage market. So it is critical that we give the new regulators the power to make sure that they survive and they do well and do their function in the mortgage market.

WILLIS: And the differences, of course, are the ways that happens, the way we get to the solution.

Senator, thank you for helping us out today. We appreciate it.

BUNNING: I thank you very much.

VELSHI: Well, this show is all about you, and it's time for you to get involved and weigh in on our "Quick Vote."

CNNMoney.com's Poppy Harlow here with today's question.

What is it, Poppy.

POPPY HARLOW, CNNMONEY.COM: Hey there, Ali.

Well, Friday's seizure of IndyMac Bank by the government, that really scared a lot of people. Customers lining up this week to pull their money from IndyMac in fear of losing it.

So we want to gauge exactly how you feel out there. Here's our question today.

Do you feel your money is safe at your bank? Yes, no, maybe you're unsure? Let us know on CNNMoney.com. We'll bring you the numbers later in the show -- Ali.

VELSHI: All right. Poppy, stay right here, because you're going to have to explain to us exactly what you're doing on a Vespa. We're going to talk about that next.

And confessions of a subprime lender. Well, there she is. See? She's on a Vespa. We're not meaning to suggest she's a subprime lender.

We're going to talk to an industry insider about just who is to blame in the mortgage meltdown.

Stay with us. You're watching ISSUE #1, right here on CNN.

(COMMERCIAL BREAK)

VELSHI: Well, a group of Republican House members is traveling to the Arctic National Wildlife Refuge this weekend to explore drilling there. Yesterday, we spoke with Representative Michelle Bachmann, who is going on that trip. Today we wanted to bring in one of her Democratic counterparts, Representative Earl Blumenauer, a Democrat from Oregon.

Representative Blumenauer, good to see you again.

You and none of your Democratic colleagues are going on this trip to ANWR.

REP. EARL BLUMENAUER (D), OREGON: Not this one. I've been to the Arctic Wildlife Refuge, spent several days hiking and camping there. But with all due respect, my friends are engaged in drillusion (ph).

All the experts will tell you, even if we decided to go drill there, open it up tomorrow, American families would pay another $50,000 before there would be any trickle of relief. That's probably 20 years away, and it's only going to result in a couple of pennies of difference when that happens. That's not the approach.

VELSHI: So what's the solution? What should we be doing?

BLUMENAUER: Well, one of the things we can do tomorrow is open up the Strategic Oil Reserve. We've got -- we've done this three times in the past, starting in 1991. Each time, the price of a barrel of oil has dropped -- well, last time we did it in 1991, it dropped a third.

VELSHI: And there's a lot of oil there, 700 million barrels.

BLUMENAUER: Yes.

VELSHI: The president has pretty much said he's not going to do that. But the bottom line is, even if they did that, that is absolutely a finite resource, right, once you're at the bottom of that thing?

BLUMENAUER: Yes. Well, we don't have to get to the bottom.

Remember that world demand only went up one percent, and the price of a barrel of oil has almost doubled. There is a speculative bubble that is involved here. And whether it's $10 a barrel, $50 a barrel, $100 a barrel, that is something that's going to make a difference in a matter of days.

The second thing we need to do is continue to reduce demand. And we're moving ahead, providing choices for consumers, providing more incentives to develop things that are already available. And the combination of reducing demand, using the Strategic Oil Reserve, and using the drilling we have now will make a difference that will be -- not have to wait for 20 years.

VELSHI: We've talked before. You're clearly passionate about this, and many of your colleagues are. But we have seen congressional hearings, we've seen bills.

Does this not need to be treated a little bit more like an emergency, where everybody comes together, puts aside some partisan differences and says, what do we actually have to do? There are four or five things causing the price of oil to be where it is. Do we not need something more urgent?

BLUMENAUER: Well, I agree that it's urgent, that's why, for instance, tapping into the reserve tomorrow. That is why we need to deal with oversight of the markets. That's why we ought to be working on renewables that will be a sustainable energy future.

Remember, this is part of what we passed in the first hundred hours of Congress, to be able to change the energy future. We had to fight to increase fuel efficiency standards for the first time in 30 years.

This has been on the top of the agenda of Speaker Pelosi and the Democrats in the House and Senate since the beginning. And we've had to fight to get to the point that we're at now.

I agree and I hope my Republican colleagues would cooperate with us rather than go look at some place that might have some oil 20 years from now. People need relief now.

VELSHI: All right. Representative, good to talk to you again. Thank you for joining us.

Representative Earl Blumenauer of Oregon joining us.

BLUMENAUER: My pleasure.

WILLIS: Well, it is Ride Your Scooter or Motorcycle to Work Day. What a mouthful. And if you're thinking of joining the scooter craze, get this, the industry is planning a vehicle that gets 140 miles to the gallon.

CNNMoney.com's Poppy Harlow is here, and she has today's "Energy Fix" -- Poppy.

HARLOW: Hey there, Gerri.

I rode in a scooter. I will show you that in a little bit this morning.

Lots of fun, but long before gas was $4 a gallon, Carrie Lee, my colleague from Headline News and "LOU DOBBS TONIGHT," was riding her scooter to work each and every day. She says it could be an energy fix for you, but first you will need to take a safety course.

(BEGIN VIDEO CLIP)

CARRIE LEE, CNN CORRESPONDENT: You do have to be a little careful weaving in and out of traffic. That's part of the beauty, though, as well, that it gets you around quickly. But yes, you always want to keep an eye out, always be a defensive driver, and just assume the worst from everyone else.

(END VIDEO CLIP)

HARLOW: You know, Carrie says it only cost about $7 to fill up her gallon and a half tank. She gets about 80 miles to the gallon. She can go a long way on just one tank. Even though her scooter is approved for the highway, though, she says she doesn't feel very safe taking it there.

(BEGIN VIDEO CLIP)

LEE: You know, a lot of times trucks won't even see you. That's something to keep in mind wherever you're driving.

A lot of times if an accident happens, it's because somebody simply doesn't see you. You know, their mind is sort of conditioned to keep an eye out for cars and bikes, and things like this just simply don't register. So always be a defensive driver. Always use your mirrors. And definitely practice before you get out there in any sort of congestion.

(END VIDEO CLIP)

HARLOW: A good point there, but it looked like a lot of fun. I wanted to spice up my morning. So even though I was in high heels and in a skirt, I couldn't resist. Take a look at it there.

Yes, I don't think I could drive one yet, but I was a good backseat rider. I hope CNN has collision insurance -- Gerri.

WILLIS: They may need more than that.

Listen, I am so curious about these, because I think they look like so much fun. Were you nervous in traffic?

HARLOW: Yes, I was nervous in traffic. I mean, New York, taxi drivers weaving in and out of here.

We're making a big deal about scooters, though, because in Europe, they're really, really common. A lot of people have them because gas prices in a lot of European cities approach $10 a gallon. And scooter maker Piaggio thinks the U.S. is ready for a renaissance of its own.

(BEGIN VIDEO CLIP)

PAOLO TIMONI, PRESIDENT AND CEO, PIAGGIO GROUP AMERICAS: Here in the United states, this is not yet the case for the markets, still in an infancy, is growing very rapidly. And it's been booming since gas prices have hit $4 a gallon.

(END VIDEO CLIP)

HARLOW: Booming is an understatement. Piaggio says sales were up 146 percent in June for its Piaggio and Vespa brands here in the United States. One man came up to us on the street this morning. He said he just bought a Vespa yesterday because driving his Pathfinder was just getting too expensive -- Gerri.

WILLIS: Wow. But you know, haven't we seen this before? Do their sales spike at different times?

HARLOW: Yes, we have seen this before. But what Piaggio says is basically they think the days of cheap gas are all but over. They don't see a return to that at all.

The CEO also says it's a trend of a lot of people moving out of the suburbs, into more urban areas, where you can use Vespas more easily. Piaggio has also -- this is kind of cool -- introduced a three-wheel version. It hopes that's going to be popular with older people. Maybe our parents will jump on those.

And, you know, the company apparently -- it's not very satisfied with getting just 70 miles per gallon. It will release a hybrid scooter next year that gets a whopping 140 miles a gallon, meaning a hybrid scooter or any kind of scooter could be an energy fix for you.

Very cool.

WILLIS: I love it. They're so much fun. I want a pink one -- Ali.

VELSHI: I have a motorcycle. If you get your pink one and Poppy gets that one back, we can all ride around New York together.

All right. We talk a lot about mortgages on this program. Just how did this mortgage meltdown happen? We're going right to the source. We're talking to a former subprime lender.

And where is the best place to live? Where can you get the absolute most for your money? We've got the scoop.

You're watching ISSUE #1, right here on CNN. (COMMERCIAL BREAK)

WILLIS: Many fingers have been pointed in the mortgage meltdown. Who is to blame, the industry, the customer? And who better to ask than somebody who was part of the system.

Richard Bitner is the author of "Confessions of a Subprime Lender."

Richard, great to see you.

RICHARD BITNER, AUTHOR, "CONFESSIONS OF A SUBPRIME LENDER": Good to be here. Thanks.

WILLIS: Now, you were not just somebody who was in the industry, you actually owned your own firm, you were in the business for 14 years. You still consider yourself an insider, really.

Why did you leave?

BITNER: Well, I think we've hit a point -- and one of the things we forget about, this is a risk-based business. And we had gotten to a point as we went from 2003, 2004, to when I left in 2005, to simply being able to do two things a business needs to do, which is to remain competitive and to manage risk. And we had reached a point that we simply weren't able to do that anymore, which is why I decided to leave.

WILLIS: So you couldn't make money, that's why you left?

BITNER: No. Well, keep in mind, these loans are riskier. And as a lender, if I'm going to write riskier loans, that needs to be able to price for that relative to the down payment that's in there, relative to what's happening in the marketplace. And clearly, we reached a point that I wasn't able to do that anymore. So...

WILLIS: All right. Well, I have to be -- I thought you left because you didn't like some of the practices.

BITNER: Well, I think what we -- well, it's a combination of both. Absolutely.

What really I think ultimately turned me away was I ended up funding a loan that I was not comfortable with. It was an industry- specific loan, the person met the guidelines. It was not one of the liar (ph) loans that we've heard so much about. It was a full documentation loan.

WILLIS: What was wrong with it?

BITNER: Well, what ended up happening was the borrower had to get foreclosed on, couldn't make the payment because of a medical condition that developed for the wife. And when I went back and I reviewed the file, I just realized it was simply a bad risk decision. We didn't do anything wrong, we met the investors' guidelines. It was simply an example of a loan that went too far relative to what was an acceptable standard in the industry. That's one of the reasons...

WILLIS: Well, do you have regrets about this? And why did it take you so long to come forward? I mean, I realize that you left a couple of years ago, but why did it take so long for you to bring your message to the public?

BITNER: Well, I think it was a combination of a couple of things. One, when I left, I didn't envision that things would get as bad as they did.

And you know, I've been a lifelong mortgage guy, I still work in it actually in the trade publication space. And I really felt like, as I started hearing about what Congress was talking about relative to changes, I kind of thought I had some pretty strong views relative to what did and didn't need to happen to try to balance both credit availability for the consumer, as well as trying to make sure that we protected the consumer.

WILLIS: All right. We're talking in some pretty high terms, but in the book you talk about problems with appraisals, you talk about the problems with how much money was actually given, loans to people who shouldn't have gotten it. You agree with some of the criticism, let's be clear here, of the industry that there were big, big problems that need to be solved.

BITNER: Absolutely, no question. And this is not, by any stretch of the imagination, a book that tries to say this is all of the wonderful things that the subprime did.

WILLIS: OK.

BITNER: It's largely a book about everything that went wrong from broker, consumer, lender, investment bank.

WILLIS: OK. Let's talk about solutions. Where do we need to go? What needs to be fixed?

BITNER: A lot of things. Actually, one of the biggest things for me, if you look as this as a food chain, from the consumer at one end, to the investors who buy the bonds at the other, is to deal with the rating agencies. I think we've got a very flawed relationship between the investment banks and the rating agencies that raided the securities. I think if the investors who worldwide bought these bonds knew exactly what they were doing based on the real risk behind them, I don't think that it would have flowed down as much as it did to the consumer level.

WILLIS: Lots of problems and very few answers, frankly, at this point.

Richard Bitner, you have a few of them. Thanks so much for being with us.

BITNER: Great to be here. Thanks, Gerri.

VELSHI: All right, the airlines are in trouble, some worse than others. Find out if your favorite flyer is in danger of financial downfall.

And there is so much going on -- high inflation, record gas prices, banking troubles. We want to bring in some of the best minds covering these stories every day. The CNN money team is next.

You're watching ISSUE #1, right here on CNN.

(COMMERCIAL BREAK)

WILLIS: Well, you have made the economy issue #1 this election year and the candidates are responding with their plans on how to fix it.

CNN's senior political analyst Bill Schneider takes a look at what they're saying.

(BEGIN VIDEOTAPE)

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST (voice over): The news on the economy is fast-moving and mostly down. Confidence in banks, down. The stock market, down. Housing prices, down. The chairman of General Motors is hoping things will settle down.

RICK WAGONER, CHAIRMAN AND CEO, GENERAL MOTORS: Frankly, we're going to have to ride it out for a while until market conditions settle down.

SCHNEIDER: Not everything is down. Inflation, up. Last month, prices rose at the fastest pace in 27 years. Politicians are struggling to keep up with events.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I think the system basically is sound. I truly do. And I understand there's a lot of nervousness.

SCHNEIDER: The candidates talk about going after wrong-doers.

OBAMA: Predatory unscrupulous lending, checked neither by the sense of corporate ethics or a vigilant government.

SEN. JOHN MCCAIN, (R) PRESIDENTIAL CANDIDATE: Speculation and lenders who contributed to this mess.

SCHNEIDER: Barack Obama has a long-term energy plan.

OBAMA: I will invest $150 billion over the next 10 years -- $15 billion a year -- to put America on the path of true energy security.

SCHNEIDER: John McCain has a short-term plan, but the payoff may take a while.

MCCAIN: We should be drilling right now in places that are off our shores.

SCHNEIDER: The economy seems to be spinning out of control. The candidates are hard-pressed just to keep up. Obama added an event to talk about how, if he's elected, the government will work with the auto industry to turn it in a new direction.

OBAMA: Rebuilding our manufacturing base and our auto industry and working with the auto companies to make sure that we're creating the fuel efficient cars.

SCHNEIDER: Voters often behave as if the president is commander and chief of the economy. But he's not. Nobody is. The economy is too big and too complex. In turbulent times, that's a little scary.

Bill Schneider, CNN, Washington.

(END VIDEOTAPE)

VELSHI: Turbulent times. What are you talking about? Oil -- there's a fire sale on oil. They're giving it away. It's like $134 right now.

The stock market. Have you seen this? Take a look at the Dow. Look at this, 145 points higher. Issue #1 is now officially issue number three. But we do have the CNN Money team with us. Poppy Harlow, Tami Luhby and Paul La Monica cover this stuff every day for CNNMoney.com and have been doing so for some time.

And you are smart enough to know that this means everything's OK. If anything, this is one very, very confusing week. But I'll tell you the one obvious thing that I kind of feel embarrassed about telling people on TV is inflation, because we give everybody once a month the inflation number and are all shocked but everybody knows how much they pay for stuff. It's quite a number -- Paul.

PAUL LA MONICA, EDITOR AT LARGE, CNNMONEY.COM: Yes, certainly. It was not, I don't think, a huge surprise to see the consumer prices were up as much as they were. But still, it was higher than expected. And it's just going to continue to be a problem probably for the foreseeable future, despite the drop in oil that we're seeing today.

VELSHI: The year-over-year number, 5 percent. I mean when you compare that to your wages or your investment increases or what you've got in the bank, very few Americans got 5 percent increase anywhere, which means the value of your money's going down.

And, Tami, for those people who think that we got a break after the collapse of IndyMac and the frustration around Freddie Mac and Fannie Mae, this might be a break today. Tomorrow that break ends.

TAMI LUHBY, SENIOR WRITER, CNNMONEY.COM: Probably. We had some good news today out of Wells Fargo. They beat analyst expectations for the second quarter earnings. But tomorrow we have Merrill reporting in the afternoon, we have JPMorgan in the morning and the big one, Citigroup, on Friday.

VELSHI: All right. So we've got -- and we know that the banking sector is still a little bit shaky right now.

LUHBY: Yes, it still is. And while analysts today said, you know, Wells was a nice surprise, they're not expecting similar results tomorrow.

VELSHI: Poppy, we are talking about these markets doing really well today because oil has dropped $10 or $11 in the last couple of days. Wow, we're still talking about oil at $134 a barrel.

HARLOW: I know, it's amazing. It's double what we saw a year ago this time. That's unbelievable. People's salary haven't gone up even slightly. If anything, they've really gone down. We saw a wage report today that shows that.

The drop in crude today better than expected. Crude inventories here in the U.S. 3 million barrels more. Well, you know what, we use about 21 million barrels a day. So that's just a tiny -- a drop in the bucket.

Also, this was interesting. OPEC said that they thought the outlook for 2009, the demand, would slip just a little bit. I think that helps in terms of the broader outlook for the world. But, I mean, really, Ali, we talk about it every day. We could see oil shoot back up in the next few hours.

VELSHI: Right. Yes, we've got to wait a few days or even weeks to see if there's a trend.

Paul, another trend that we've been following, airlines. Continued trouble for the airlines. There was a research report out by an analyst who rates these things for companies. Credit ratings for companies. And he was saying he thinks one major airline will fail in the next year. He didn't say which one. He said there are a few that are at risk, but they're not all going to be in business.

LA MONICA: Yes, he didn't name names, but he said that there is a distinct possibility of a major carrier filing for bankruptcy perhaps in 2009, that it's probably going to get significantly tougher for the already battered airline industry after Labor Day. What's interesting, though, it kind of fits in with this theme we're seeing of stocks rallying today. Airlines are actually up. Delta and American Airlines reported losses, but they weren't as bad as investors feared.

VELSHI: Right. That's where we're at now.

LA MONICA: So what we're seeing today that's interesting is that this rally does seem to be predicated on, oh, maybe it's not as bad as we all thought.

VELSHI: Where is the silver lining people?

LA MONICA: It's not great, but it's just not as bad.

VELSHI: Tami, we do think that that other shoe still is the financial sector. The economy can't completely reverse itself and get going without the help of the financial sector. Do you get a sense that maybe we're at the end of this thing or we're seeing the last few innings of this game? LUHBY: No, probably not. Unfortunately, what we've had until now mainly has been the write-downs on bad mortgages. But we're just starting to see the beginning of the loan losses. I mean consumers don't have the money to pay their bills and, you know, we know that from the mortgages. We haven't really seen it fully in the auto loans, the credit card loans and all of the other things. So now the fear is loan losses.

VELSHI: Ben Bernanke saying in Congress today that maybe, maybe we start to see the housing market bottom out at the end of this year or the beginning of next year -- Gerri.

WILLIS: Well, I hope he's right about that.

Ali, getting the most for your money is something we all want. We'll take you to the top places in the country where your dollar stretches the farthest.

And answers to your money questions. Send us your e-mails. The address, issue1@cnn.com.

(COMMERCIAL BREAK)

WILLIS: Well, a new report out shows rising fuel prices and weak cash flow may lead to multiple bankruptcies and liquidation for major U.S. airlines in 2009. Jennifer Westhoven is live right now with details in Atlanta -- Jennifer.

JENNIFER WESTHOVEN, CNN CORRESPONDENT: Hi. Thanks, Gerri.

Yes, and this report, it's not predicting that these airlines will go under, but it's saying if things keep going the way they're going, if the current structure stays in place, if oil prices stay where they are, and airlines don't do more, you can just look at these balance sheets and you can see that the storm is coming.

Now these are major airlines we're talking about. Not just small regional carriers. Here's who Fitch says they're worried about. United, Delta, U.S. Airways, even former stars like Southwest and JetBlue.

Now, airlines, of course we know they sometimes survive bankruptcy. Delta, Northwest recently came out of bankruptcy. But sometimes they don't, right? You think about those old names like Panam and Eastern.

And, of course, the root cause of today's problems are these higher oil prices. They've doubled from 2000 to 2007 and then they doubled again just last year. So that's costing these airlines billions of dollars. And even though, you know, if you know anybody's who's worked for an airline or if you have -- you know they've already had very painful cost-cutting moves.

But Fitch says it is not enough. They've cut thousands of jobs. They've parked more than 460 planes. And they've cut flights by 10 percent. But Fitch says they're going to have to do more. And almost as if, you know, to back up this study, airlines posting some terrible numbers. There's Fitch saying, look, what they've done so far isn't sufficient. But then this morning we heard Delta lost $1 billion, American Airlines lost nearly $1.5 billion.

You heard before people from CNNMoney were having a conversation that this is better than expected, but it's still terrible. Many of the airlines are taking these huge charges this time around for all of these one-time costs. When you shrink, you have these big, one time costs, like severance.

I mean the good news is that Delta would have made some money if it hadn't been for those charges, but we've got a lot more charges possibly coming. And even if oil drops sharply, right, it still may be more than $100 a barrel. So we still have sharply higher costs.

And I think bottom line, Gerri, one analyst told CNN Money that for the airlines to get healthy, it's going to cost about 20 percent more to fly.

WILLIS: Wow. Well, Jennifer Westhoven, a complicated story. Thanks for breaking it down for us.

VELSHI: What was that noise with Jennifer? Is there like a marching band there or something? Was somebody moving something?

WESTHOVEN: It was a guy going past with a garbage can. Lack of set.

VELSHI: That's a human making that noise? You might want to mention to the guy he works in a TV place.

WILLIS: It's the new CNN Money table (ph).

VELSHI: That's crazy. Jennifer, good to see you.

Now, listen, everything changes right now on ISSUE #1. No more doom and gloom, it is all fine. Oil is, like they're giving it away. It's $134 a barrel or something like that. Take a look at that, market, 127 points higher on the Dow. I'm tired of bad news, so I am now bringing you day three of the best places to live series in conjunction with "Money" magazine.

On Monday we told you the top towns, yesterday we told you the top places for jobs and today we are going to tell you where to get the most bang for your buck. Donna Rosato is back with the money -- she's with "Money" and she -- you've got a great job, Donna. With all the doom and gloom out there, you've got great advice for people that they can really act on. How did you pick these places?

DONNA ROSATO, SENIOR WRITER, "MONEY": Well, we started -- we looked along (ph) to find places where you got the most for your money when it came to housing. So we took 2007 -- we looked for places in 2007, median home prices, the ratio of median home prices to income and we looked for where your money went the furthest. We threw out any towns that had declining jobs, declining population and we came up with our list.

VELSHI: Smaller places or big cities?

ROSATO: They tend to be smaller places, though they're really around the country. Our first place, no big surprise, is right in the middle of the country. Nicholasville, Kentucky. Outside of Lexington. Bluegrass country. Nice little town. And guess what you can pay for -- a median home price there is $70,000. You can buy a nice three bedroom, two bath home for less than $100,000.

VELSHI: All right. Another place that shows up on the list is Watauga, Texas. Texas has been one of those states that's actually done well. It's even increasing jobs and things like that. So that helps with Texas.

ROSATO: That really does help a lot, which is nice. And you don't really see the big jump up in home prices there, which has been good for Texas homeowners. So what you see there in Watauga is, it's outside the Dallas-Ft. Worth Metroplex. Lots of jobs, but home prices still remain stable. The median home price there is about $117,000. You can buy quite a nice place for, you know, $150,00, a three bedroom, two bath starter home.

VELSHI: They have nice places in Georgia.

ROSATO: Yes, it's Redan, Georgia. It's outside of Atlanta. It's near Stone Mountain, which is a nice, beautiful park. People who live there can commute into Atlanta for work. But your average home price there, or the median home price, is $115,000. A little bit pricier. A four bedroom home, you're probably going to pay $150,000 and up for that. But it's still, compared to many parts of the country, very reasonable.

VELSHI: You've got a place in New York. I imagine this isn't too close to New York City. Clay, New York?

ROSATO: This is upstate New York. You're looking outside of Syracuse. A little cold up there, but there's a lot of businesses that have been attracted to that area. There's still a little bit of tourism up in that area too. Median home price up there, 124,000. You could buy a nice three bedroom, two bath home for around $110,000.

VELSHI: About 60,000 people there. Most of the places have been small, but your next place is Omaha, Nebraska.

ROSATO: That's right, Warren Buffett land, but you don't have to have his money to buy a decent house there. In fact, I've heard he's lived in the same house for a long time himself. But Omaha has a lot of financial service companies, so there's a lot of jobs there. Median home price, $113,000. You're going to probably spend maybe $150,000 to $200,000 on a nice three bedroom, two bath home.

VELSHI: All right. Good stuff. Donna, we're not -- unfortunately we're not going to have you back on this topic, but thank you for bringing us all this good news in a week that's been particularly tough. ROSATO: No problem. If you want to look up where your own town stacks up, look at CNNMoney.com/bestplaces and you'll find out more info.

VELSHI: Excellent. Thanks.

WILLIS: Wow, I love that. Affordable places.

Well, still ahead, why America's youth can't seem to find any jobs and what the future looks like. We'll open up the Help Desk. Answers to your questions. We're looking out for your money. We're all over issue #1 right here on CNN.

(COMMERCIAL BREAK)

WILLIS: Hello. It's time for the Help Desk. Here to answer your money questions today, Ryan Mack, the founder and president of Optimum Capital Management, Stephanie Auwerter is with Smart Money and Donna Rosato is with "Money" magazine.

Welcome to all of you. Let's get right down to it.

Tom from Kansas asks: "How can I tell if my mortgage has been sold to Freddie Mac or Fannie Mae or some other investor and is part of a bundled mortgage-backed security."

Great question. What do you say, Ryan?

RYAN MACK, PRESIDENT, OPTIMUM CAPITAL MANAGEMENT: Well, a lot of these mortgages are being bundled and sold. So the first thing you have to realize is there are federal regulations that govern the buying and selling of these loans. So the buyer and lender have until 15 days before your payment is due to send you a letter to let you know of the new place you have to correspond with your new loan.

However, you have to be careful because in phone -- by your phone and in writing we have to notify -- call the company to make sure that it's not a scam. There's been a lot of scams going around for individuals trying to say, hey, we have your loan here, but just call them up, just make sure is this a new place I'm going to send our new loan and what not.

WILLIS: So, Stephanie, weigh in here because I think a lot of people are concerned about Fannie Mae and Freddie Mac right now. A lot of people don't know it but their mortgage is involved with some other investor, some other institution. Should they be worried?

STEPHANIE AUWERTER, EDITOR, SMARTMONEY.COM: Well, it really depends. I mean there is just no question. If you're looking at the stocks of these companies, if you're an investor in these companies, it is time to be concerned. But I think that there is no question that these institutions are too big to fail. I think that if your mortgage is being held by an outside lender, there are protections in place. As long as you keep paying your mortgage, I think you are going to be taken care of, although there's just no question that this is a scary time for folks. WILLIS: And I think Ryan's absolutely right, watch your mail, because you want to know if you have to send your payments somewhere else.

Let's move on to John in Illinois who says: "What is insured by the FDIC, accounts or individuals? I have heard it both ways" -- Donna.

ROSATO: Yes, it's confusing to people. But what the FDIC insures individuals up to $100,000. If you have joint accounts, it's up to $200,000. And certain retirement accounts are up to $250,000. But if you're not sure, the FDIC provides a great calculator on its web site, fdic/gov.edie. And that's an electronic deposit insurance estimator. So just go to fdic/gov and you can figure out exactly how you're insured, whether you're covered or not.

WILLIS: Well, that's a great idea. And I know a lot of people out there will probably be doing this this afternoon. Do most people have to be worried about their bank here, Ryan?

MACK: Well, I do feel that there is a certain amount of worry and concern, especially with the whole IndyMac crisis. A lot of the smaller, regional banks going through a lot of worry. But if you have money under $100,000, your money is insured. If you're in a credit union, you are insured by the National Credit Union Share (ph) Insurance Fund. So it is backed by the full faith and credit of the government. So as long as the government's intact and that we have a strong government, we have nothing to be concerned about.

WILLIS: Yes, if you have problems with that part of it, then you've got bigger issues than just your mortgage.

Stephanie, weigh in here though. Lots of fears about banks. Who should be concerned? Who should be checking out the details? Small bank -- people who bank at smaller banks? People who bank with the nationals?

AUWERTER: Well there's no question that as this sort of credit crisis continues to spread, that more banks may run into trouble. So I think now is a time to really pay attention to the news. Make sure that you know where your limit is, know whether you're over that 100,000 limit and really just sort of watch these accounts.

I mean you don't want to panic. And I don't think there's any reason to panic. But it is -- now is a good time to be really aware of your finances and know where everything is stashed.

WILLIS: Can I tell you how many people have come up to me and said, I think I'm going to put my money in my mattress. Good idea? Bad idea?

ROSATO: It's a bad idea. You know, you're going to lose out on some interest that you can earn. You know, one good thing about interest rates going up right now is that you're actually going to earn a little bit more. You can actually find, you know, some online bank accounts offering like 3.5 percent, 4 percent. So, you know, you don't want to hurt yourself. And you are protected unless you have under $100,000 -- unless you have more than $100,000.

And you ask who should be worried? I read a statistics the other day that said about 37 percent of people may not be insured, but those tend to be small business owners. So I think as a small business owner, those are the people who might want to double check to make sure that they're not over that $100,000 limit.

WILLIS: OK. Great advice. Thanks so much for your help today. Stephanie, Ryan, Donna, thanks so much.

VELSHI: OK, coming up next, we are talking jobs. Why one segment of the population is having such a hard time finding one.

And don't forget to weigh in on today's Quick Vote. This show's about you. We want to hear from you. The question, do you feel your money is safe at your bank? Log on to CNNMoney.com and let us know. The results are next.

You're watching ISSUE #1 and this is CNN.

(COMMERCIAL BREAK)

WILLIS: Do you feel your money is safe at your bank? That's today's Quick Vote question. Let's check back in with CNNMoney.com's Poppy Harlow for the results.

HARLOW: Hey, guys.

This is some welcome news. Sixty-six percent of people said, yes, they feel their money is safe. Twenty percent said no. Fourteen of you are unsure. If you're unsure, check with the FDIC. See if your bank is insured by them. How much of your money is in the bank. Up to $100,000 is insured. Some welcome news. This was our most popular poll, 125,000 votes almost.

VELSHI: All right. Good to know.

WILLIS: Amazing.

VELSHI: Glad people are hearing at least that there is a way to keep your money safe.

WILLIS: You bet.

VELSHI: Now if you're a teenager looking for a job, good luck. A new study by the National Youth Jobless -- about the national youth jobless rate for June -- you know what, why don't you say it?

WILLIS: OK. Well, it was at its highest in 60 years. Thirty- seven percent of teens, age 16 to 19, had jobs, compared to 51 percent in June 2000. The reason, teens seeking low skill service jobs for the summer are competing with older, laid off workers, illegal immigrants, and college grads who can't find jobs.

VELSHI: D.C. had the highest jobless rate for teens followed by Chicago, Detroit, and New York. One note about the study, it didn't use the Labor Department's definition of unemployment, which is people who are actively looking for a job. Instead, this one measured the proportion of young people who are actually working.

WILLIS: Interesting stuff.

Well, for more ideas, strategies, and tips to save you money and protect your house, watch "Open House," Saturday at 9:30 a.m. Eastern right here on CNN.

VELSHI: And for more on how the news of the week affect yours bottom line, tune in to your money Saturday's at 1:00 Eastern and Sunday's at 3:00 right here on CNN.

WILLIS: The economy is issue #1 and we here at CNN, we're committed to covering it for you. ISSUE #1 will be back here tomorrow, same time, 12:00 p.m. Eastern, right here on CNN.

VELSHI: Now it's time to get you up to speed on other stories making headlines.

"CNN NEWSROOM" with Don Lemon and Fredricka Whitfield starts right now.